Construction risk management is a commitment that Decor Construction takes seriously. We mitigate a number of risks through on-going education and training. Capterra, a construction management software company, shared a great guide to help companies identify potential risk.
To start managing your construction risks, you need to be able to list out what could jeopardize your projects. Take a deep breath, because the list can be long:
Running a company that keeps you awake at night, worrying about all the things that might conceivably happen, is no fun. The next step is, therefore, to focus on the risks that are significant for your construction business. (Or if you prefer, on the ones that are really worth losing sleep over!)
Other construction companies’ key risks are not necessarily your own, and vice-versa. For example, their office may be situated in an area prone to earthquakes, while your office is safe elsewhere. In other words, start with an open mind about possible risks and don’t limit yourself by using somebody else’s list.
That’s a risk in and of itself.
Having said that, some risks tend to materialize more often than others. Contractor company failure statistics illuminate the following top five reasons:
Interestingly, poor construction does not feature in this list. Most building work is done properly, either because contractors want to do a good job anyway or because building codes and inspections keep results in line, stage by stage. Poor business practices are a more common cause of failure. Construction firm owners and managers with good technical know how often struggle with the management side.
But let’s get back to your risks, meaning the ones that are most likely to affect your particular project or enterprise. There is a simple and effective way of evaluating the importance of each construction risk. It depends on two factors:
If you had numbers (dollar figures for the impact, percentages for the probability), you could simply multiply the impact by the probability for each risk, and then rank the results in order. A bigger result would indicate a higher priority risk to manage. Hard numbers are not always easy to come by, but you can still use estimates to rate impact and probability as low, medium, or high. The risks with both high impact and high probability are then clearly the ones to address first. For example:
To show others quickly and intuitively what the risk situation is, you can draw a simple 3×3 grid with low-medium-high probability up against the left-hand side and low-medium-high impact from left to right along the bottom of the grid. Then write each risk in the corresponding square. The ones in the top right corner (high probability, high impact) are the highest priorities.
Although construction risks may be varied and complicated, risk management techniques fall into four simple categories.
The approach you choose to manage a risk can also be optimized in terms of the reward associated with the risk. Profit, a repeat building project from a customer, or getting a key construction project reference to break into a market are all examples of rewards that you may be looking for. Higher rewards may require higher levels of risk. However, higher levels of risk do not automatically yield higher rewards.
To learn more about our construction risk management practices, call Decor Construction at 918-382-7663 today!